This article is part of a three part series titled “Alternative Dispute Resolution – Why, When & How.” To read the other parts in this series, or to read more articles about ADR, navigate to the Wolfe Law Group ADR page here: ADR.
In the world of construction, litigation is perhaps unavoidable.
Problems with Litigation
An adequate discussion of all the drawbacks to litigation would consume a volume of books, and so this brief summary should be taken in context. Nevertheless, it seems to be common knowledge that litigating disputes in courts of law can be time consuming, expensive, unpredictable and generally unfavorable to any of the participants.
The average lawsuit takes between 2-5 years from start to finish, and can cost thousands of dollars. The process is draining on the participants emotionally and physically, and in the end, the parties usually compromise their initial positions to reach a “settlement.”
Unlike in dispute resolution proceedings, a party to litigation cannot pick the judge or the venue, nor can the parties dictate the rules. Litigation is consumed by procedural requirements, motion hearings and discovery – each item contributing to increased time and expense.
The Option of Alternative Dispute Resolution
Alternative Dispute Resolution (“ADR”) is centered around the idea of the parties agreeing to resolve their differences through a non-litigation process. Instead of filing a lawsuit and incurring the associated expense and risk, the parties each submit to another procedure. This procedure is usually less formal than the state or federal court system, and is governed by rules crafted by the parties themselves.
Alternative Dispute Resolution can be chosen by the parties at anytime. Normally, parties will include an Alternative Dispute Resolution provision within their contract requiring each other to use ADR in the event of a dispute. In other circumstances, however, the parties will agree to engage in ADR even after filing a lawsuit in an effort to encourage a fair and speedy resolution.
Since ADR is largely driven by the goals and agreement of the parties, the manner in which a dispute will be adjudicated is restricted only by the parties’ creativity. There are, however, a number of ‘standard’ ADR mechanisms used frequently in the construction industry. Oftentimes, all three of the below types of ADR processes are used to resolve a dispute.
The three below discussed types of resolution are discussed in their usual order of use. In many cases, only one of the below ADR processes are used by the parties, and sometimes they are even mixed and matched with traditional litigation.
It’s important to recognize that each process will carry delay and expense, and so it might not make sense to schedule all three processes when the parties are only arguing over $10,000.00. Furthermore, when all resolution types are used, the parties could be faced with delays and costs that resemble traditional litigation. Accordingly, parties must be careful in their selection of their own ADR rules.
1. The Construction Neutral
The “neutral” concept in construction has recently been sanctioned by huge contract document publishers like ConsensusDOCS and AIA, whose documents now contemplate the appointment of a “Initial Decision Maker” to resolve disputes quickly and on-site.
Traditionally, the Architect served as an initial decision maker in a construction project. When an owner and contractor disagreed about a change order amount or quality of work issue, the decision of the architect would be sought.
Being hired and paid by the Owner, this put the architect in an uncomfortable and conflicting position. The dispute often escalated even after the architect’s decision, leaving the parties with expensive litigation and a delay in the project.
The idea of a “neutral” or “initial decision maker” simply tenders the decision-making role to a neutral third-party, appointed by the parties during or subsequent to contracting. The initial decision maker provides the parties with a fast and inexpensive third-party voice, hopefully capable of resolving the dispute and keeping the project on-track towards completion.
The decision of the initial decision maker is usually considered “final” by the parties for the purposes of the project’s progress, but in almost every instance, the parties allow the decision to be disputed through further dispute resolution processes (such as mediation, arbitration or litigation).
Unlike almost every other type of dispute resolution procedure, mediation does not pit one party’s position against the other, does not provide a “decision” of a neutral party and is not binding upon the parties in anyway.
Contrary to any other dispute resolution procedure, mediation is a confidential meeting of the parties, whereby they each air out their positions and explore its strengths and weaknesses. The mediation process encourages settlement by providing a forum for an open discussion of the party’s respectful positions, and the road ahead in the event the parties continue in their disagreement.
Normally, the mediation will begin with a meeting of all parties and the mediator, whereby each party expresses their position and their concerns. The mediator then breaks the parties into different rooms, whereby they only communicate to one another through the mediator.
Mediation is a very successful settlement tool, and when used correctly it can help parties avoid the costs and risks of litigation.
While the mediator is greatly involved with the parties and works to help them settle, he or she will not make any decisions that will binding upon the party. The mediation proceeding is only “binding” if a settlement agreement is reached.
The third and final type of dispute resolution process discussed in this article is “arbitration,” perhaps the most traditional ADR procedure.
Arbitration is very similar to traditional litigation in that it involves a decision maker (i.e. judge), witnesses and testimony, a traditional review of evidence and procedural rules.
While similar to litigation in some manners, arbitration is certainly an entirely different proceeding. The parties are intimately involved with setting the rules and proce
dures, as well as even cho
osing who will arbitrate. The “rules” of the proceeding are also much less formal than traditional courts require.
In a typically arbitration, the parties will appear before a single arbitrator, or a panel of arbitrators. These decision makers are typically experienced in the field of law and industry at dispute, and they will listen to each side present their case. Thereafter, the arbitrator(s) will make a decision that is enforceable by one party over the other.
Pros and Cons of ADR
The pros and cons of ADR over traditional litigation is a worn topic.
While there are certainly a lot of positive characteristics to ADR, it is not a process that fits in every circumstance. Like almost any other legal decision, you should consult the advice of an attorney and consider the pros and cons of each procedure before deciding on one over another.
Although there are some circumstances when traditional litigation is preferred over ADR, in the construction industry ADR is a fact of life and is normally an asset to those working on projects of all shapes and sizes.
Here is an overview of some of the most discussed pros & cons to ADR:
Pros to ADR
Cons to ADR:
Where Do I File For ADR?
With so much discussion of ADR, a reader may be quite curious as to who manages “ADR,” and where the ADR courthouse is located.
Interestingly, there isn’t a courthouse system for the ADR network. Every city has a number of private companies that offer ADR services, and these services are usually located in office buildings in-between doctors, lawyers and accountants. Since the parties are in the driving seat of ADR proceedings, they can even choose their neighbor or relative to conduct the proceedings (not recommended, but mentioned to highlight the informality of the processes).
Some companies are more established than others, and you should investigate any organization before choosing them to adjudicate your dispute. In many instances, the parties will actually select the ADR provider at the time of contracting .
The most popular provider of ADR services is the American Arbitration Association.
The Next Series
Next in this three part series on Alternative Dispute Resolution is a discussion on: